You read that right… Tax refund payments, which have been going on since the 1980s and have changed form with the latest “Minimum Subsistence Allowance” application in order to tax the wages you will receive as of January 2022, have actually been removed from our lives with the latest law. If we examine this process historically; Without going into the details of the law, I will talk about it as a story as follows.
We all remember the practice that was provided to employees in the past and received as an annual tax refund in order to tax wages in a real way. In fact, most of us, when we were young, filled out the tax return forms of our mothers, fathers or close relatives and personally put hundreds of receipts into the envelopes. Those who remember and know this practice know very well that we receive a tax refund in addition to salary payments based on the voucher amount that should be collected according to the previous year’s tax base.
However, this practice was abolished by law no. 5615 dated 28/03/2007 and replaced by the “Minimum Subsistence Practice”, which we know as “AGİ”.
With the AGI application, in the name of “social justice” implementation, those who paid more taxes and those who paid less taxes would receive the same amount as a “tax refund substitute” and this amount would vary depending on family status. At the same time, it was announced that the relevant law article would be valid as of the beginning of 01/01/2007 and that “transactions regarding the tax deduction to be deducted from the income tax that wage earners will pay in 2007 for the year 2006” would be carried out within the framework of the repealed law.
In other words, it has been announced that the tax refunds for 2006 will be paid in 2007. Accordingly, it has been stated in the Income Tax Communiqué that since the article has been repealed, there is no longer a need to keep the receipts as of 01/01/2007.
Here, the tax refund amounts for 2007 were ignored by the law and the minimum subsistence allowance principle was introduced to be applied to the income to be obtained as of 01/01/2008. In other words, we started the AGİ Application as the country could not receive the tax refund amounts for 2007. In fact, in order to appear innocent at that time, in some circles, we started to receive the 2007 tax refund as of 2008, and this was interpreted as meaning that we would receive the previous year’s amount every year.
You will understand at the end of the article that this statement is not true.
It did not take long for AGI to become familiar with the introduction of the practice, and it was now seen as a contribution to wages. So much so that in the communiqué for the AGİ application, a definitive provision was published stating that employees with a “Net Wage” agreement will also benefit from the AGİ application and that the AGİ amount will be paid to the wage earners along with their net wages. It was decided that this process was not left to the initiative of the employer and that it was the employee’s right. Until 2016…
Many of us will remember that in the 2015 elections, it was a period when promises were made regarding the minimum wage, and in order to fulfill the promise of the government of the time, the concept of “Net Wage Including AGI” was introduced into our lives in order to fulfill the promise of a Net 1,300 TL minimum wage. After it was announced that the Net Minimum Wage was 1,300 TL Including AGİ, the practice of Net Wage Including AGİ started in that year in the institutions where the majority of employees worked with net wage.
At the same time, the Minimum Wage, which is announced every year, is now included in the AGİ. However, in the Income Tax Communiqué, it was stated very well-intentioned that net wage earners would be added. Until 2022…
With the change made in the legislation with the “Income and Stamp Tax Exemption Application for Wages Up to the Minimum Wage Amount”, which will be valid as of 2022 and known to all of us, the AGİ Application has been removed from our lives and the payment, which is converted from the tax refund to the AGİ application and then melted into the net wage, has now gained a different dimension with our state’s “good news that we have abolished the tax from the minimum wage”.
In fact, while this practice was introduced, it was not included in the notification how the exemption amount would be applied to employees with a “Net Wage” agreement, just like in AGİ, and it was left to the discretion of the employer.
The question that comes to mind here should actually be this. Since there is an exemption for the fees introduced with the new regulation, where did the tax refund go? According to some of the statements we mentioned above; Now, while I was supposed to receive my tax refund for 2021, the AGI application was suddenly abolished and, according to the legislation, exemptions began to be rightfully applied to my 2022 wage income.
Although the state seems to have waived its income by not collecting taxes, the circular issued as a continuation of the process of including the AGI application in the wages, which has evolved from its initial state to the worse, has indirectly caused great losses in employee incomes with many issues left pending.
With this regulation made to provide additional income to employees, since the tax deduction does not provide additional benefits to the employee but is included in the wage, especially for net wage earners, since tax is not calculated from the exemption amount, SSI bases have fallen below what they should be and in fact, the right to a tax refund has been taken away over time.
We do not know how much it will change in this way, but in the future, when it is said that the tax exemption has ended, will a regulation be put in place? If regulation is to be put in place, will this new regulation make the situation even worse? We will see together.
In summary, how right and fair is it to gradually remove the tax refund from poor citizens by law and somehow integrate it into the wages, while the daughter of the hand – the son of the hand coming from abroad can receive the tax refund immediately when returning to their country, and all companies, large and small, can receive the tax refund? I leave it to your interpretation.
CHRONOLOGICAL CHANGE OF TAX REFUND APPLICATION FOR THOSE WHO WANT TO REVIEW
Essentially, it has a history starting from the 1980s, but if we start from the history of legislation in the near future;
- “Article 13” in the Law No. 3946 dated 26/12/1993 and Article 63 – Clause 5 in the 193 GVK was added.
ARTICLE 13
The following paragraph number 5 has been added to the first paragraph of Article 63 of the Income Tax Law No. 193 dated 31.12.1960, following paragraph number 4.
- 1/3 of the total annual amount of the taxpayer’s education, health, food, clothing and rent expenses for himself, his spouse and children.
However, the expenses subject to deduction must be made in Turkey, must be documented with documents obtained from real persons or legal entities who are liable for income or corporate tax, and these documents must be given to the employer. The discount amount calculated in this way cannot exceed 35% of the annual tax base of the wage for the year in which the expenditure was made.
The difference between the tax calculated by taking this deduction into account and the amount of tax paid by the taxpayer withholding in that year is offset against the income tax the wage earner will pay in the following year or is refunded to him in cash through employers. The Council of Ministers is authorized to reduce the 35% rate in this paragraph to zero, to increase it up to the legal rate, or to determine different rates in terms of expenditure subjects, expenditure and fee amounts.
The Ministry of Finance is authorized to determine the deadlines for the presentation and declaration of the wage earners’ expenditure documents to the employer and the refund of the tax, to have the refund made in cash or by deduction, and to determine and determine the procedures and principles of this application.
- “Article 37” in the Law No. 4842 dated 9/4/2003 and Article – 5 clause in the 193 GVK were abolished.
- “Article 15” in Law No. 4842 dated 9/4/2003 and the duplicate article 121 of 193 GVK were added.
Tax deduction for wage earners:
Duplicate Article 121. – In the taxation of real wages, the annual total amount of the taxpayer’s education, health, food, clothing and rental expenses for himself, his spouse and children;
– 8% up to 3 billion liras,
– 8% for 3 billion liras of 6 billion liras, 6% for the excess part,
– For more than 6 billion lira, 7% for 6 billion lira, 4% for the part exceeding it,
It is deducted from the income tax that the wage earner will pay in the following year or is refunded to him in cash through employers.
As long as; The expenses must be made in Turkey, must be documented with documents obtained from real or legal persons who are subject to income or corporate tax, and these documents must be given to the employer. The amount of expenditure taken into account in calculating the amount entitled to deduction cannot exceed the total tax base.
The Ministry of Finance is authorized to determine the periods for the presentation and declaration of the expenditure documents of the wage earners to the employer and the deduction or refund of the tax, to have the refund made in cash or offset, to determine the purchases of goods and services that will be subject to tax deduction and refund, without being limited to those listed above, and to determine the procedures and principles of implementation.
- In the Law No. 5615 dated 28/3/2007, “Article 31” and the duplicate article 121 titled “Tax deduction for wage earners:” have been abolished.
- In Law No. 5615 dated 28/3/2007, “Article 2” and the repealed Article 32 of Law No. 193 were rearranged with the title “Minimum subsistence allowance”.
“Minimum subsistence allowance
ARTICLE 32 – Minimum subsistence allowance is applied in the actual taxation of the wage.
Minimum subsistence allowance; The annual gross amount of the minimum wage valid at the beginning of the calendar year in which the wage is earned and applied to workers over the age of 16 working in the industrial sector; 50% for the taxpayer himself, 10% for his spouse who is not working and has no income, and separately for each of his children; It is 7.5% for the first two children and 5% for the other children.
If the income belongs to a partial period, the discount amounts corresponding to this period are taken as basis by counting the fractions of months as full months. Minimum subsistence allowance is applied by deducting the amount calculated by multiplying the amount determined in accordance with this paragraph with the rate applied to the first income bracket of the income tax tariff in Article 103, from the calculated tax. If the amount to be deducted is excessive, no refund will be made.
In the application of the discount, the term “child” refers to children who live with the taxpayer or are cared for by the taxpayer (including those who are given alimony, adopted children, and grandchildren who have lost their parents and live with the taxpayer) who are under the age of 18 or are in education but have not completed the age of 25, and the term “spouse” refers to people who have a legal marriage bond.
In determining the discount amount, the taxpayer’s marital and family status at the date of income is taken as basis. The discount is applied separately to each family member earning wage income, and to the income of only one of the spouses for children, provided that it does not exceed the amounts calculated according to the above rates. In calculating the discount amount for divorced people, the number of children for whom they provide alimony is taken into account.
The Council of Ministers is authorized to increase the minimum subsistence allowance rates specified in the second paragraph or reduce them to the legal rate, provided that the total amount to be deducted does not exceed the annual gross amount of the minimum wage.
“The procedures and principles regarding the application periods of the minimum subsistence allowance, the method of deduction and other matters are determined by the Ministry of Finance.”
- With “Article 3” of Law No. 7349 dated 22/12/2021, Article 32 of Law No. 193 has been repealed, effective as of the end of 2021.
- In the Income Tax General Communiqué, Serial Number 265, the principles for the “Minimum Subsistence Allowance” application are stated and a fine detail to be implemented in practice is stated very strikingly and clearly.
Under the title of “5. Calculation of the Minimum Subsistence Allowance Amount” of the Communiqué, at the end of Example 1, there is the statement “Employees who work by agreeing on the net wage will also benefit from the minimum subsistence allowance, and the minimum subsistence allowance amounts deducted from the calculated tax will be paid to the wage earner together with their net wages.”
- On 01/01/2016, the Minimum Wage was made 1300 TL net and this situation continued in the following years.
- In the Law No. 7349 dated 22/11/2021, “Article 2” and the newly added 18th clause to the 23rd article titled “In Wages” of the Law No. 193 have been added to the items exempt from Income Tax from wages. At the same time, the AGI application has been abolished.
- (Added: 22/12/2021-7349/2 art.) The wages of the service personnel corresponding to the remaining amount after deducting the worker’s social security institution premium and unemployment insurance premium from the monthly gross amount of the minimum wage valid in the month of payment (provided that, in the taxation of wage income exceeding the exemption, the income bracket amounts and rates in which the tax will be calculated are determined by taking into account the amounts within the scope of the exemption.
The tax amount to be paid is calculated by deducting the portion corresponding to the exemption amount from the tax amount thus found. The tax that will not be collected due to the exception cannot exceed the tax that should be calculated on the monthly minimum wage in the relevant month. For those receiving wages from more than one employer, this exception applies only to the highest wage.)
Özer Yılmaz
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